Selecting the perfect ISA for you

ISAs (Individual Savings Accounts) are one of the most effective ways to save money and earn higher interest than standard bank or savings accounts. With tax-free returns on investment, and the ability to save up to £10,200 in the current tax year, depending on your circumstances, there are many clear advantages to choosing an ISA over other types of savings. However, you should also be aware that ISAs are far from a 'one size fits all' investment option, making it easier to find the option best suited to you.



If you will be primarily saving cash, choosing a cash ISA could be your ideal solution, allowing you to pay up to £5,100 this tax year - though this figure is set to increase each year in accordance with inflation. The major advantage of cash ISAs over bank or building society savings accounts is that your interest is tax-free, whereas previously your bank would typically tax between 20 and 50 per cent of the interest generated by your savings.



With so many cash ISAs available, both online and on the high street, you need to ensure that you set up your account with a regulated provider, and that your account will be protected by the Financial Services Compensation Scheme. This will allow you to enjoy the peace of mind of knowing your investment will be safeguarded against all eventualities.

Financial security is a key consideration of any ISA account, perhaps even more important than the relative interest it offers compared to those of other providers. Reading the enclosed safety guidelines when you open your new savings account will inform you of just how far your provider will go to look after your investment.



Another factor to consider is whether your account gives you the option of transferring your ISA to another provider at any stage, as rates can be changeable in the turbulent economic markets and you could find that the best deal is soon overtaken by a competitor.



If the maximum saving allowance of a cash ISA isn't enough for you, however, you can look into splitting your allowance with ISAs that allow you to invest in stocks and shares. These accounts may take a little longer to get to grips with if you're a first-time investor, but mean you'll be able to enjoy the full benefits of investing up to £10,200 a year - increasing to £10,680 in the 2011/2012 tax year - and watching your savings grow.